Why Can Budget and Actual Be Different?

[Suba]

In corporate finance, controllers often conduct periodic variance analysis by comparing budgets with actuals. In variance analysis, we often find differences between budgeted and actual revenues and expenses.

As we know, a budget is a financial plan/estimate prepared for a specific period, while actuals are the actual results of a business's operations. Even though financial experts have prepared budgets with great care and precision, there will ultimately be differences between the actual results and the actual results. Can you explain why these differences occur?

 

[Starmix]

The prices might have altered the current analysis, the past budget might have surpassed the actual prices or expenses in the present.

 

[Min George]

That's because there are so many unforseen circumstances that might happen in real life that budgets could not capture.